4 Things You Can Do to ‘Recession-Proof’ Your Retirement

Written by Kirk Wilkerson, CIMA®, CFF, Regional Director & Partner

Many of us have a specific time by which we’d like to retire, such as a certain age or reaching a specific financial goal. But life events — whether personal or global — can also shape your retirement timeline.

According to research from the Federal Reserve, 25% of retirees said COVID-19 led to their retirement decisions. As many as 10% of retirees said a lack of work forced them to retire. What about an economic crisis?

There’s been talk for months about an impending recession affecting many different industries, jobs, and markets. In October 2022, the Conference Board reported a 96% likelihood of a recession over the next 12 months. Would the effects of a downturn affect your plans to retire?

Kirk Wilkerson, Merit’s Atlanta Co-Regional Director and Partner, has helped many people successfully retire throughout his career. Kirk shared his expertise with us on how a recession may impact your upcoming retirement.

1. Lay the proper foundation

If you’re already working with a financial planner, you’re likely prepared for retirement, recession or not. However, if you have yet to lay the foundation and want to retire soon, a recession will likely impact your retirement, and you may have to postpone it.

It may also depend on when you’re retiring and how it compares to the timing of a possible recession. If we’re nearing a recession, the market has likely already adjusted. However, the market has never bottomed before entering a recession [Source]. Therefore, if you are sitting on cash, you could find good entry points while in an economic recession.

It’s important to understand that so many investors live in fear about the market in general. This often comes from not understanding how the market works, but a good financial advisor and a financial plan can help. In fact, planning is the best antidote to fear — so plan, plan, plan.

2. Be selective about where you get your information

There is a lot of talk in mainstream media about an impending recession. At Merit, we regularly receive phone calls and emails from clients who want to know what they should do at these times. Many of these calls are from a place of fear, which can depend on where you’re getting your information.

Generally speaking, it’s best to avoid constantly checking your investments. This will prevent you from panicking and hopefully dissuade you from making rash decisions that may impact you negatively. Stay away from the noise, follow trusted professionals, and financial analysts who are of sound mind.

3. Work toward independence

When it comes to retirement, we work to achieve a lifestyle you desire independent from income and what is happening in the market. Remember, no fear!

We know what you’re retiring from, but do you know what you’re retiring to? How much is enough to fund that lifestyle? Answering these questions creates a better picture of the next season, no matter the economic climate. That picture, along with a solid retirement plan, is built to withstand any potential recession, and that’s what true independence is in retirement.

4. Be clear about your strategy

Once we’re in a recession, the market is generally working its way back. Every day we’re in recession, we’re getting closer to the end of the downturn and an economic recovery. If you have created a retirement plan that lasts as long as 20-30 years, what happens to the economy in a few months shouldn’t affect your plan.

There are specific strategies you can employ during this time. Some things should be underweighted but not necessarily avoided (except low-quality, high-yield bonds). Real estate is a hard asset that does well in an economy with rising inflation, but you have to be careful about which type of real estate. For example, and in my opinion, corporate real estate would not be my choice at this time, not only because of the gig economy, but because of the rise of virtual teams. Real estate investment trusts (REITs), with a low exposure to corporate office space, may be a good addition to a portfolio at this time.

If you’re a nervous investor, annuities, while not a regular part of our practice, are one way to guarantee income in your retirement.

If you have done excellent planning, a recession shouldn’t affect your retirement, and your advisor has likely been making portfolio adjustments along the way. Your asset allocation should be based on need: short-term, intermediate, and long-term. Placing the right amount of money into the proper investment allocation, combined with the appropriate amount of risk will help to ensure the funds will be available when needed.

Money decisions, especially retirement-focused, can be emotional. As advisors, a critical part of our job is to remove as much emotion from these decisions as possible.

For professional help with retirement planning, be sure to contact Merit Financial Advisors today!